In the

United States Court of Appeals

For the Seventh Circuit ____________

Nos. 03-2484, 03-2771

EMPLOYERS INSURANCE OF WAUSAU,

Petitioner-Appellee,

v.

EL BANCO DE SEGUROS DEL ESTADO,

Respondent-Appellant.

____________

Appeals from the United States District Court

for the Western District of Wisconsin.

No. 98 C 521—Barbara B. Crabb, Chief Judge.

____________

ARGUED JANUARY 5, 2004—DECIDED FEBRUARY 3, 2004

____________

Before POSNER, KANNE, and ROVNER, Circuit Judges.

POSNER, Circuit Judge. The procedurally intricate litigation

that has culminated in these twin appeals arises from a

dispute between the parties to several contracts of reinsurance. Back in the 1960s and 1970s, Employers Insurance of

Wausau had reinsured, with a number of insurance companies including an instrumentality of the Uruguayan government called El Banco de Seguros del Estado (“state insurance bank”), insurance obligations of Wausau. Wausau

sustained losses from claims arising out of asbestos-related

illness that it tried to offload on to the reinsurers. They
2 Nos. 03-2484, 03-2771

resisted. Wausau demanded arbitration pursuant to the

reinsurance contracts, and in 1995 an arbitration panel

awarded Wausau some $7.8 million, of which Banco’s share

was $181,000. The award, confirmed by a Wisconsin state

court in In re Employers Ins. of Wausau, 552 N.W.2d 420 (Wis.

App. 1996), provided that reinsurers—expressly including

Banco—who failed to pay the award within 45 days would

have to “provide a Letter of Credit to Employers of Wausau

in the amount of $9,000,000 in a form acceptable to the

Wisconsin Insurance Department and to secure payment of

the ultimate liability in this matter.” All the reinsurers paid

within 45 days except Banco, which neither paid nor posted

a letter of credit. Years passed and in 1998 Wausau petitioned the district court in the Western District of Wisconsin

to confirm the award against Banco, which, although both

named in the state-court confirmation proceeding as a defendant and served, had not appealed or otherwise participated in that proceeding yet claimed not to be bound by the

judgment in it. It is unclear why Wausau sought relief in

federal district court for Banco’s defiance rather than

instituting contempt proceedings in the state court. But

Banco does not challenge the propriety of Wausau’s choice

of forum and there is no doubt that the federal court had

jurisdiction under the treaties concerning disputes over

arbitration with foreign entities. 9 U.S.C. §§ 203, 302.

Banco defended in the district court on the ground that it

had not received proper notice of the arbitration. The

district court rejected the defense and confirmed the award,

and we affirmed. 199 F.3d 937 (7th Cir. 1999). Banco refused

to comply with the award even after the judge issued a writ

of execution, and so Wausau instituted a further

postjudgment proceeding. In response, Banco acknowledged its obligation to pay the $181,000 plus interest and

attorneys’ fees, which had also been part of the award. But it
Nos. 03-2484, 03-2771 3

refused to post the $9 million letter of credit on the ground

that all that the arbitrators back in 1995 had required it to do

was to post a letter of credit to secure the payment of so

much of the award as remained unpaid, so that once Banco

paid what it owed no purpose would be served by the

posting of a letter of credit except to secure Wausau against

future debts of Banco to it that might arise from the reinsurance contracts. Yet while acknowledging that it owed

Wausau $181,000 plus interest and attorneys’ fees, Banco

neither paid anything nor posted a letter of credit in any

amount or on any terms.

Rejecting Banco’s argument, the district court in

September of 2001 ordered Banco to post the $9 million

letter of credit and pay the award, including interest and

attorneys’ fees. Banco appealed, but we dismissed the

appeal on the ground that the district court’s order was

neither a final judgment nor an injunction. A motion to hold

Banco in contempt remained pending in the district court,

and while the order to post a letter of credit was an interlocutory injunction, it was not immediately appealable

under 28 U.S.C. § 1292(a)(1) because it merely reiterated the

previous injunction, which we had affirmed, commanding

Banco to post the letter of credit. Gautreaux v. Chicago

Housing Authority, 178 F.3d 951, 956-58 (7th Cir. 1999).

Meanwhile, however, Banco had finally admitted defeat to

the extent of paying Wausau $1.5 million, which included

the $181,000 awarded by the arbitrators, the interest and

attorneys’ fees also awarded by the arbitrators, plus attorneys’ fees incurred by Wausau subsequent to the arbitration, although the payment of interest fell short by $16,000

(eventually it was paid, however). But Banco still refused to

post the letter of credit.

Shortly afterwards the district court socked Banco with

another $50,500 in sanctions to punish it for a suit it had
4 Nos. 03-2484, 03-2771

brought in a federal district court in New York that had

been transferred to the Western District of Wisconsin. In it

Banco had sought an interpretation of the arbitrators’ award

that would have excused it from having to post the letter of

credit. It had sued in New York because Wausau had filed

the judgment that it had obtained in the Western District of

Wisconsin there believing Banco might have assets in New

York that it could levy on to satisfy the judgment it had

obtained in the Western District. The filing of the judgment

in New York did not justify Banco’s mounting what

amounted to a collateral attack on the Western District’s

judgment. The circumstances in which collateral attacks are

permitted in civil matters are circumscribed, see Fed. R. Civ.

P. 60(b), and were never present in this case. Had Wausau

tried to levy on the judgment in New York, Banco could

have resisted on various grounds, such as that the amount

of the judgment was incorrectly shown on the papers filed

by Wausau (it was) or that Banco had no assets in New York

that Wausau would be entitled to levy on. Banco did not do

this; probably Wausau had given up on trying to collect

anything in New York.

A year after the transfer of Banco’s frivolous New York

lawsuit back to the Western District of Wisconsin, and even

though the district court’s judgment requiring the posting

of a letter of credit had already become final by virtue of our

having affirmed it, Banco demanded that Wausau arbitrate

the issue whether Banco was required to post a letter of

credit. Wausau responded by asking the district court to

enjoin arbitration and impose sanctions for Banco's continued refusal to post the letter of credit. It was thereby seeking

postjudgment relief to protect the earlier judgment that it

had obtained from the district court, requiring the posting

of the letter of credit, from being undone. E.g., Resolution

Trust Corp. v. Ruggiero, 994 F.2d 1221, 1224 (7th Cir. 1993);
Nos. 03-2484, 03-2771 5

EEOC v. Gurnee Inns, Inc., 956 F.2d 146, 148 (7th Cir. 1992);

Webb v. Ada County, 195 F.3d 524, 526 (9th Cir. 1999). The

district court issued the injunction and also imposed civil

contempt sanctions for disobeying the order to post the

letter of credit, ordering Banco to pay the court $2,000 a day,

rising in stages to $4,000 on May 16, 2003, until Banco

complied with that order, and to pay Wausau an additional

$240,000 in attorneys’ fees incurred in efforts to obtain the

relief that the district court had ordered earlier. The clock

continues to tick. Banco, which could have limited

its liability to $181,000 in 1995, has already paid more

than $1.5 million and if we affirm the sanctions and the

additional attorneys’ fees ordered will owe in excess of

$1 million more. No doubt it has also incurred very substantial attorneys’ fees of its own over the past eight years;

a modest guess would be $500,000. If this is right, Banco

stands to lose more than 15 times the amount of its original

liability to Wausau.

The appeals challenge the sanctions, the additional attorneys’ fees, the injunction against arbitrating the dispute

over Banco’s duty to post a letter of credit, and the district

court’s order to post it. The issues are intertwined. The

frivolous demand for arbitration, set against the backdrop

of Banco’s seemingly irrational obduracy throughout the

eight years since the issuance of the arbitrators’ award,

showed that Banco would never comply with the order to

post a letter of credit unless subjected to the strongest possible penalty for civil contempt. The basis of the demand for

arbitration was the disagreement between the parties over

whether, as Wausau believes, the arbitrators intended that

any reinsurer who did not pay the arbitration award would

have to issue an irrevocable letter of credit that Wausau

could use to secure future debts that the reinsurer might

owe Wausau under its reinsurance contracts, or whether as
6 Nos. 03-2484, 03-2771

Banco contends the intention was just to require a letter of

credit to secure payment of the arbitrators’ award; in that

event Banco’s eventual satisfaction of the award discharged

its duty to issue a letter of credit. That is a legitimate

disagreement. Indeed, we think Banco has the better of the

argument. But the time to have sought arbitral clarification

was when the award was issued, not eight years later. There

was no legal basis for so belated a demand for clarification.

It is true that although there is a three-month limit on

motions to vacate, modify, or correct an arbitral award,

9 U.S.C. § 12, there is no fixed deadline for a motion to

remand for purposes of obtaining a clarification of the

award. Hyle v. Doctor’s Associates, Inc., 198 F.3d 368, 371 n. 1

(2d Cir. 1999); United Steelworkers of America, Local 4839 v.

New Idea Farm Equipment Corp., 917 F.2d 964, 968 (6th Cir.

1990). But when no deadline for filing a motion or other

pleading is specified, the inference is not that the motion

can be filed at any time before the Day of Judgment, but that

it must be filed within a reasonable time. Eight years is not

a reasonable time. It is a separate question what the deadline is for requesting clarification from the original arbitrators directly, as distinct from asking a court to remand

the case to the arbitrators. The former deadline “is essentially a matter of contract between the parties,” Brown v.

Witco Corp., 340 F.3d 209, 218 n. 8 (5th Cir. 2003), but if there

is no applicable contractual term, again a reasonable time is

the default rule. Glass, Molders, Pottery, Plastics & Allied

Workers Int’l Union, AFL-CIO, CLC, Local 182B v. Excelsior

Foundry Co., 56 F.3d 844, 848 (7th Cir. 1995); Brown v. Witco

Corp., supra, 340 F.3d at 219; cf. International Brotherhood of

Teamsters, Chauffeurs, Warehousemen & Helpers of America,

AFL-CIO, Local 631 v. Silver State Disposal Service, Inc., 109

F.3d 1409, 1410, 1412 (9th Cir. 1997). Not only is eight years

unreasonable (quite apart from the fact that one of the
Nos. 03-2484, 03-2771 7

arbitrators has died), but we can’t imagine a panel of

arbitrators being willing to clarify an award after the award

had been challenged in federal court and enforced, unless

directed to do so by the court. See Legion Ins. Co. v. VCW,

Inc., 198 F.3d 718, 720 (8th Cir. 1999).

Alternatively, without seeking clarification Banco could

have posted a $9 million letter of credit that by its terms

would terminate when it paid the entire amount that it

owed Wausau. That would have placed the burden on

Wausau to challenge the adequacy of the letter of credit.

Banco didn’t do that either.

The remaining question is whether Banco has in fact to

issue an unconditional letter of credit. The tail of exposure

created by its reinsurance contracts with Wausau is a long

one because of the length of time that it takes asbestos

claims to ripen. Wausau believes that before coverage ends,

Banco may owe it more than $9 million, so it would very

much like to have a letter of credit that would guarantee its

being able to collect from Banco whatever money turns out

to be due. And while letters of credit are sometimes used to

secure debts that arose before the letter was issued, In re

Compton Corp., 831 F.2d 586, 594 (1987), modified on unrelated grounds, 835 F.2d 584 (5th Cir. 1988) (per curiam); In

re El Paso Refinery, LP, 171 F.3d 249, 254 (5th Cir. 1999); In re

Air Conditioning, Inc., 845 F.2d 293, 296-97 and n. 3 (11th Cir.

1988), they are more commonly (Transparent Products Corp.

v. Paysaver Credit Union, 864 F.2d 60, 63 (7th Cir. 1988)) used

to secure future debts, as in Tippecanoe Beverages, Inc. v. S.A.

El Aguila Brewing Co., 833 F.2d 633, 636 (7th Cir. 1987);

Colonial Courts Apartment Co. v. Proc Associates, Inc., 57 F.3d

119, 123 (1st Cir. 1995), and Chase Manhattan Bank v.

Equibank, 550 F.2d 882, 884-85 (3d Cir. 1977).
8 Nos. 03-2484, 03-2771

But we do not think the arbitrators’ award in this case can

sensibly be interpreted to require such a guaranty. Remember that the duty to post a letter of credit was imposed by

the arbitrators in respect of their having imposed liability on

the reinsurers for a past default, and that it was conditional

on a reinsurer’s failing to pay the money part of the arbitral

award within 45 days. The implication (supported by the

arbitrators’ statement that the purpose of requiring the letter

of credit was “to secure payment of the ultimate liability in

this matter” (emphasis added)) is that the purpose of

requiring a defaulting reinsurer to post a letter of credit was

to secure the debt created by the award, not future, unrelated debts. The judgment of the Wisconsin state court

confirming the arbitrators’ award also states that the

purpose of the letter of credit is “to secure the amounts” that

the reinsurers had been determined by the arbitrators to

owe Wausau. So when Banco finally paid the award, it was

no longer obligated by its terms to post a letter of credit. Of

course it should have sought clarification of the matter at

the outset, as we said. But as no court or arbitral panel has

ever ruled on the scope of the obligation (it appears not to

have been an issue in the state court proceeding), the failure

to have sought clarification has not waived or forfeited

Banco’s right to an adjudication of the issue.

It might seem, though, that in asking for clarification at

this late date Banco is trying once again to mount a collateral attack on the judgment of the district court, which required the posting of the letter of credit. But that court

explicitly left open the question what the letter of credit

means: whether it is just meant to secure Banco’s existing

liability to Wausau, or whether as Wausau claims it secures

future debts as well. If the former, then since Banco has at

last satisfied that liability, it has no obligation to post the

letter of credit. The former is the correct interpretation. No
Nos. 03-2484, 03-2771 9

purpose would be served by returning the case to the

district court for the identical determination.

This ruling does not affect the accrued sanctions. Judicial

orders must, unless stayed, be obeyed even when wrong.

Pasadena City Bd. of Education v. Spangler, 427 U.S. 424, 439-

40 (1976). Because of Banco’s impressive record of obstinacy, moreover, we shall not lift the $4,000 a day sanction.

When and if Banco pays the court and Wausau all moneys

owing them, including all reasonable attorneys’ fees incurred by Wausau in defending against Banco’s appeal from

the sanctions order and the denial of arbitration and in all

subsequent proceedings in the district court required to

extract the moneys due from Banco, the daily sanction shall

cease to accrue.

The judgment is vacated insofar as it orders the posting of

a letter of credit but is otherwise affirmed, with costs of the

appeal to be borne by the respondent. The case is returned

to the district court for the limited purpose of assuring

Banco’s compliance with the judgment as modified in this

opinion. Further obduracy by Banco will result in the

imposition of additional sanctions that will make $4,000 a

day seem like the touch of a feather.

AFFIRMED IN PART, VACATED IN PART, AND REMANDED.

A true Copy:

Teste:

 _____________________________

Clerk of the United States Court of 

Appeals for the Seventh Circuit 

USCA-02-C-0072—2-3-04